Odds are, you are familiar with a rather small company that has a very wide reach that goes by the name of The Brink’s Company (NYSE:BCO). If you can’t quite pinpoint in your memory where that name comes from, just think of armored vehicles used to transport cash. As a massive player in the cash management space, The Brink’s Company has demonstrated itself to provide a quality service. Revenue, profits, and cash flows, continue to increase even though more and more transactions every year are becoming digital. Management has achieved this growth through innovation. On top of this, shares of the business are trading at very attractive levels. Given this nice mixture of positives, this particular opportunity looks appealing enough to me to warrant a rather solid ‘buy’ rating at this time.
Further upside is warranted
A little over a year ago, in early January of 2023, I wrote an article discussing why The Brink’s Company may offer an interesting prospect for value-oriented investors. Financially speaking, the business had been doing quite well, with revenue, profits, and cash flows growing. I expected that trend to continue throughout 2023. Add on top of this how cheap the stock was, and I had no problem rating the business a ‘buy’ at the time to reflect my belief that the stock should outperform the broader market moving forward. Sure enough, that is exactly what transpired. While the S&P 500 is up 25.9% since the publication of that piece, shares of The Brink’s Company have generated upside for shareholders of 55.5%. But even with that move higher, I believe that additional upside is on the table.
To start with, we should touch on the financial performance of the company. Briefly, I would like to address the 2022 fiscal year in its entirety. During that time, revenue totaled $4.54 billion. That’s a rather significant increase over the $4.20 billion generated for 2021. As you can see in the chart above, bottom line performance also improved without exception. Net profits jumped from $103.1 million to $173.5 million. Operating cash flow, as well as adjusted operating cash flow, both increased nicely, as did EBITDA.
The good news for investors is that strong performance did not stop in 2022. For the first nine months of the 2023 fiscal year, The Brink’s Company generated revenue of $3.63 billion. That’s 8.5% above the $3.34 billion generated the same time one year prior to that. Although the company benefited to the tune of $107 million from acquisitions, this was more than offset by a $115.1 million impact associated with foreign currency fluctuations. In particular, the business was negatively affected by the Argentine peso. The real growth, then, came from organic demand. In Latin America, revenue spiked $191.1 million. In Europe, growth was $54.2 million. Even in North America, revenue expanded, climbing $27.6 million. Inflation based price increases, as well as growth in some of the company’s key initiatives that I will talk about shortly, were responsible for much of this upside.
With the rise in revenue came improved cash flows. However, profits did shrink slightly. Net income dropped from $125.8 million to only $92.2 million. However, operating cash flow shot up from $200.5 million to $293 million. On an organic basis, the increase was less, with the metric growing from $354.9 million to $376.4 million. However, EBITDA for the business managed to jump from $540.9 million to $615.3 million.
Although the 2023 fiscal year is now over, management has not reported results for the final quarter. We do know, however, that management was forecasting revenue of between $4.80 billion and $4.95 billion for the year. Earnings per share should be between $6.45 and $7.15. At the midpoint, that should imply net profits of $320.3 million. In addition to this, management forecasted EBITDA of between $865 million and $915 million with a midpoint of $890 million. Annualizing the other financial results for adjusted operating cash flow would get us a reading of $521.8 million.
Using these figures, I was able to value the company as shown in the chart above. In it, you can see valuation results not only for 2023, but also 2022. Shares are quite cheap on an absolute basis if you ask me. Now when it comes to comparable firms, that’s where we are challenged. I cannot find any publicly traded company of any significant scale that is terribly similar to The Brink’s Company. However, the three shown in the table below have perhaps the greatest similarities to it. In this case, one of the three companies ended up being cheaper than The Brink’s Company when it comes to both the price to earnings approach and the price to operating cash flow approach. Meanwhile, our prospect is the cheapest of the group using the EV to EBITDA approach.
Company | Price / Earnings | Price / Operating Cash Flow | EV / EBITDA |
The Brink’s Company | 11.5 | 7.1 | 6.6 |
Brady Corp (BRC) | 16.3 | 12.5 | 10.3 |
ABM Industries (ABM) | 11.1 | 11.4 | 7.3 |
MillerKnoll (MLKN) | 40.1 | 5.4 | 10.8 |
Given that the world is becoming ever more focused on digital payments as opposed to cash payments, I can understand why some investors may argue that a company like The Brink’s Company deserves to trade at such a low multiple. However, management has done very well at finding growth opportunities. One example of this involves what the firm refers to as AMS, or ATM Managed Services. This is a suite of solutions for ATM management that includes cash forecasting, cash optimization, ATM remote monitoring, service call dispatching, transaction processing, and even installation services. While this might not seem like a growth area for the firm, it certainly is. The business is seeing particular momentum in Europe, however, it has had some contractual wins both in the US and in Chile. And even in the very developed US market, transaction volume has been increasing.
The other big innovation is referred to as DRS, or Digital Retail Solutions. This involves services that facilitate faster access to cash deposits utilizing the company’s technology and software. When combined with AMS, DRS is growing rapidly, with a year over year growth rate recently of 18%. In fact, management has already said that, for 2023 in its entirety, around 20% of the firm’s revenue will come from this combination of services. While continuing to grow these parts of the firm, management is also dedicating cash to buying back stock. In fact, late last year, the firm authorized a new $500 million share buyback program that’s not slated to expire until the end of 2025. Given the amount of extra cash flow the company generates, it wouldn’t be surprising to see this buyback plan exhausted well before that point.
Takeaway
In a world where physical cash might seem a relic of the past, the management team at The Brink’s Company continues to do a fine job. Revenue, profits, and cash flows, are all growing nicely. Management has found different verticals to move into that are proving to be attractive growth opportunities. Add on top of this how cheap shares are, as well as management’s dedication to buying back stock, and I have no problem keeping the business rated a ‘buy’ for now.